China’s Double Digit Defense Growth And What it Means for a Peaceful Rise

China has done it again. In early March, it released its defense budget for 2015, and as in almost every year for over almost two decades, it increased its military expenditure by double-digit percentages. This year, the Chinese defense budget will rise by 10.1 percent, to roughly $145 billion. And it seems likely that the trend will continue, much to the concern of Washington and regional capitals.

Already, China is the second-biggest military spender in the world, having surpassed the United Kingdom in 2008. China’s new budget for the People’s Liberation Army (PLA) is more than three times those of other big spenders such as France, Japan, and the United Kingdom, and nearly four times that of its rising Asian rival, India. It is also the only country besides the United States to have a triple-digit defense budget (in billions of U.S. dollars).

This level of spending is all the more remarkable given where China started. In 1997, Chinese military expenditures totaled only about $10 billion, roughly on par with Taiwan and significantly less than that of Japan and South Korea. Beginning that year, however, China’s defense budget began to rise. There were two economic factors that made this growth possible. First, the country’s economy soared; in 1997, defense spending made up less than two percent of GDP, which remains roughly the same share today, at least according to Beijing. Second, low inflation rates over the past two decades have meant that real growth in defense spending has nearly matched nominal growth; even the most conservative estimate of actual growth rates (accounting for inflation) reveal a five-fold real increase in military expenditures since 1997.

What is particularly striking about the growth in defense spending over the last two decades is that it has almost always outpaced GDP growth. Between 1998 and 2007, China’s economy grew at an average annual rate of 12.5 percent, while its defense spending increased at an average of 15.9 percent per annum. Given that the economy is likely to grow by only seven percent in 2015, and its defense spending is growing at double digits, the disconnect between economic performance and defense spending is becoming more pronounced.